TMI Blog2010 (2) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... t vide their different orders date March 23, 2006, September 1, 2006, November 15, 2006 and December 8, 2006, respectively. The first common issue in all the five appeals of the assessee is against the revision order passed under section 263 of the Act by the Commissioner of Income-tax, Gandhinagar directing the Assessing Officer to reconsider the claim of depreciation allowed on toll road, which is a business asset of the assessee. For this, the assessee has raised common grounds in all the five appeals relating to this issue. As the facts and circumstances are exactly identical in all five appeals on this issue, accordingly we will take up the appeal in the case of Gujarat Road and Infrastructure Co. Ltd. (earlier known as Gujarat Toll Road Investment Co. Ltd. successor of Vadodara Halol Toll Road Co. Ltd.) Ahmedabad, in I.T.A. No. 1453/Ahd/2008 and the relevant grounds as raised by the assessee are being reproduced from the assessment year 2003-04: "(1) On the facts and circumstances of the case the appellant submits that the order passed by the learned Commissioner of Income-tax under section 263 is bad in law and the Commissioner of Income-tax has no jurisdiction to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case the appellant submits that they are entitled to depreciation on the toll road. The conclusion reached by the learned Commissioner of Income-tax that the learned Assessing Officer has wrongly allowed the claim of depreciation is erroneous." The brief facts leading to the above common issue are that the assessee is engaged in the business of setting up of infrastructural facilities by constructing roads. The assessee-company has constructed, operated and managed Vadodara Halol Toll Road (VHTR in short) for 31.7 k.m. of a toll road connecting Vadodara to Halol. The assessee-company has widened and strengthen the existing two lane road to four lane road vide project commenced in October, 2000. The above road was constructed by the assessee as per policy of the Government of India in a public private partnership (PPP in short) under the special purpose vehicles (SPV in short) granting concession by the Government of Gujarat permitting it to construct toll roads by forming the SPV. The assessee is a party in this SPV, which is a joint venture between the Government of Gujarat and IL and FS group. As per the policy of the Government of India the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich can be extended further if the initial investment made by you is not recovered by the said period. It is noticed from the depreciation chart that you have claimed depreciation on the said road at 10 per cent. as applicable to non-residential building amounting to Rs. 28,27,21,005. A revised return was filed by you on February 11, 2006 returning the loss of Rs.23,46,43,995 stating that the company has been merged with Gujarat Toll Road Investment Co. Ltd. with effect from October 1, 2003 vide the hon'ble High Court's order dated May 11, 2005. It is further stated that the loss as per profit and loss account of Rs. 10,01,59,636 pertained to the period from April 1, 2003 to September 30, 2003 and the unabsorbed business loss and unabsorbed depreciation will be claimed by the amalgamated company from the assessment year 2004-05. The revised return was accepted by the Assessing Officer taking into account the business results of six months by order dated November 15, 2006 and also allowed the benefit of carry forward of accumulated business loss as well as unabsorbed depreciation under section 72A of the Income-tax Act, 1961, by virtue of the amalgamation. It would be pertin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry out the business. He stated that the assessee earned revenue directly for operation of toll road and the assessee has satisfied the following test to claim depreciation: "(i) It is a capital asset. (ii) The assessee has owned the asset for 30 years of minimum period. (iii) The asset has been used for the purpose of the business. He stated that all the three conditions are fully satisfied and for the entitlement of depreciation on toll road the assessee relied on the decision of the hon'ble apex court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149. He also submitted that the depreciation on toll road has rightly been allowed by the Assessing Officer on the following grounds: "(i) Road constructed by the assessee forms the most important source of its revenue. (ii) The basic objective of the assessee-company is to construct the toll road under 'build-own-operate-transfer' Scheme. (iii) Thus, the basic criteria of claiming depreciation, e.g., existence of a capital asset, ownership of such assets and the assets were put to use by the assessee-company for its business purposes have all been met. (iv) Once the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove cited decisions, namely, Oil India Ltd. v. CIT [1982] 138 ITR 836 (Cal), Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) and CIT v. Max India Ltd. [2004] 268 ITR 128 (P and H) are totally distinguishable from the facts of this case. In addition to this, the other judicial decisions relied upon by the appellant also do not support the averments of the assessee. Learned counsel has simply culled the ratio of the decisions from different judicial decisions. In the fitness of things, I am tempted to analyse the concept of ratio decidendi in a judicial decision. It would be worthwhile to refer to one of the locus classicus on the subject. Learning the law (Eleventh Edition, Stevens and Sons, London, 1982) by Prof. Glanville Williams (at page 67) "that part of a case that is said to possess authority is the ratio decidendi, that is to say, the rule of law upon which the decision is founds . . ." The ratio decidendi of a case can be defined as the material facts of the case plus decision thereon. This view has been approved by the Constitution Bench of the hon'ble Supreme Court in Krishena Kumar v. UOI [1990] 4 SCC 207 and also in (per J. S. Anand i). 11. At the outset, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of this case, it is seen that there is no construction except the toll road. Further more, there is no factory building which has roads is its adjuncts lying within the factory and linking them together and which are being used for carrying on its business by the assessee. These were the facts of the case Gwalior Rayon Silk Manufacturing Co. Ltd. reported in [1992] 196 ITR 149 which are also distinguishable from the facts of the case under consideration. Therefore, it cannot be said by any stretch of imagination that the roads per se would constitute buildings." Aggrieved against the revision order passed by the Commissioner of Income-tax, Gandhinagar under section 263 of the Act, the assessee preferred appeal before us. Before us learned counsel for the assessee, Shri Dilip Lakhani made three fold arguments. First of all, he stated the facts that as per the policy of the Government of India the assessee has constructed a toll road on B.O.O.T basis by raising the resources. The responsibility to maintain and operate and to collect toll from the vehicles, which will use this toll road, is on the assessee. Learned counsel for the assessee stated that the business plan as ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee has constructed the toll road and also operated and collected toll fee. According to learned counsel the order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue in view of the fact that here the Assessing Officer has taken a possible view and once two views are possible and the Assessing Officer has taken one view then the order passed by him cannot be treated as erroneous. For this, he relied on the decision of the hon'ble apex court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. He also relied on the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Max India Ltd. [2004] 268 ITR 128. Another facet of the argument made by learned counsel for the assessee is on the merits. He stated that the toll road constructed by the assessee is an integral part of business activity and without which it could not carry on the business activity. According to learned counsel the entire revenue earned is directly from operating the toll road and without constructing the same it would not have been possible to carry on the business activity. He submitted that the following tests hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uildings" as per Appendix to the Income-tax Rules, 1962. Thus, the claim of depreciation on the road and bridges as "building" as per Appendix to Income-tax Rules, 1962 has also been satisfied. He distinguished the case law relied on by the Commissioner of Income-tax and the learned Commissioner of Income-tax-Departmental representative in the case of Indore Municipal Corporation [2001] 247 ITR 803. He stated that in the case of IMC, it was a local body which derived income from sale of manure prepared out of waste and night soil dumped in the trenching grounds outside the municipal limits and it constructed a metal road over the trenching ground and claimed that the said expenditure should be treated as road and claimed depreciation. The Madhya Pradesh High Court held that the metal road for hauling composed could not be considered as expenditure and the assessee was not entitled to depreciation. The hon'ble Supreme Court also held that the said metal roads cannot be treated as roads as there was no other construction on the open ground except the roads and the roads by themselves cannot constitute building. He stated in the facts before us, the toll road is constructed and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 years and rather it is not lease but only right to collect to toll from the vehicles passing through this road. He stated that the assessee cannot refuse entry to any vehicle on this road as this road owned by government and not by the assessee. Another facet of argument made by the learned Commissioner of Income-tax-Departmental representative is that the roads are not buildings falling under the definition as provided under section 32 of the Act. He referred to the provisions of section 32(1), by virtue of which depreciation is allowed on various assets including buildings, if owned by the assessee and used for the purposes of his business, the depreciation is to be allowed. But here the assessee is neither owner of the road nor the road falls under the definition of building as there was no other construction except the roads and the roads by themselves could not constitute buildings and accordingly the assessee was not entitled depreciation on the cost of construction of the road. He referred to the case law of the hon'ble apex court in the case of Indore Municipal Corporation [2001] 247 ITR 803. In view of these arguments, the learned Commissioner of Income-tax-Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icles. We further find from the facts that the road constructed by the assessee forms the most important source of its revenue and the basic objective is to construct the toll road under the B.O.O.T scheme. Thus, the assessee has fulfilled the basic criteria for claiming depreciation, i.e., existence of a capital asset, ownership of such asset and most important that the assessee were put to use for its business purpose. We find that learned counsel for the assessee has made a fine distinction in the facts of the present case with that of Indore Municipal Corporation [2001] 247 ITR 803 by stating the fact that IMC was a local body which derived income from sale of manure prepared out of waste and night soil dumped in the trenching grounds outside the municipal limits and it constructed a metal road over the trenching ground and claimed that the said expenditure should be treated as road and claimed depreciation. The hon'ble Madhya Pradesh High Court held that the metal road for hauling composed could not be considered as expenditure and the assessee was not entitled to depreciation. The hon'ble Supreme Court also held that the said metal roads cannot be treated as buildings as ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, 1882, the Registration Act, etc. In the present case neither the Commissioner of Income-tax in the revision order under section 263 of the Act or by the Assessing Officer while framing original assessment has raised this issue, but learned counsel for the assessee categorically stated that this toll road was constructed on B.O.O.T basis, i.e., means "build", "own", "operate" and "transfer". According to him, the entire responsibility for maintaining and operating this toll road for 31 years is on the assessee as he has to collect toll-fee. Once this concept of B.O.O.T has been accepted by the Government of India under infrastructure policy and the Government of Gujarat also entered in a joint venture with the assessee and formed the SPV, the question of ownership rest with the assessee for the purposes of claim of depreciation. Accordingly, this issue on merits is allowed in favour of the assessee. As regards the argument of learned counsel for the assessee as regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exist and is wound up without any further process of law. According to him, VHTRL loses its identity and existence and the Assessing Officer is aware about this fact as can be inferred from page 1 of the assessment order. He stated that after the order of the hon'ble jurisdictional High Court dated May 11, 2005 VHTRL is not any more a legal entity in existence and no proceedings can take place against VHTRL. The Assessing Officer has issued notice under section 143(2) to VHTRL and this fact is also recorded by the Assessing Officer on page 1 of the assessment order. The assessment order is passed against VHTRL and this fact is also evident from page 1 of the assessment order. He further stated that VHTRL had filed the return of income originally for the period April 1, 2003 to March 31, 2004 as the due date of filing the return was October 30, 2004 and the hon'ble jurisdictional High Court had not passed any order till October 30, 2004 and the order of the hon'ble jurisdictional High Court is dated May 11, 2005, in respect of the previous year April 1, 2003 to September 30, 2003. VHTRL has offered in the revised return income only for the period for which it was legally in exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verlay and renewal expenses as laid down in the agreement 'build-own-operate-transfer' basis, whereby the expenses claimed under the road overlay has not been scrutinised." In response to this query, the assessee replied that the expenditure under the head road overlay and renewable expenses has not been claimed in the assessment year 2004-05, relevant to the previous year April 1, 2003 to September 30, 2003. But in any case in other years, the same was claimed as business expenditure and the Assessing Officer after verifying the same has allowed the claim of road overlay and renewable expenses as business expenses. We find from the records that the Commissioner of Income-tax has only required the Assessing Officer to verify the expenses, we doubt whether the Commissioner of Income-tax has such power of verification under section 263 of the Act or not. We feel that the revision order in such circumstances is unwarranted. Accordingly, the assessee succeeds on this issue. As all the three issues in these appeals of the assessee are decided in favour of the assessee. Accordingly, the revision order passed by the Commissioner of Income-tax, Gandhinagar, under section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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